Multi-generational Iras — A Strategy For Retirement Assets
By David Chazin
In conjunction with Sagemark Consulting, a division of Lincoln Financial Advisors, a registered investment advisor. Mr. Chazin is a regular contributor to PlannerConnect

Who should benefit from your assets — you and your family or the federal tax coffers? The answer is easy: you and your family, of course. Achieving that goal is more difficult. These days, very few people stay at one job for their entire careers. So, by retirement, you and your spouse may have assets in four or five — or even more — employer-sponsored plans and individual accounts (IRAs). How you utilize those accounts at can make a big difference in the amount of assets available to pass on to children or other heirs. The Tax Bite First, there’s income tax. You’ll have to pay federal income tax plus state income tax, if applicable, on the plan distributions you receive during your lifetime. Any remaining tax-deferred contributions and account earnings distributed to your family after your death also will be subject to income tax. At present, federal income-tax rates range from 10% to 35%.1 Then, there’s estate tax. Depending on the size of your estate, your plan assets may be subject to estate tax at rates as high as 46%2 in 2006. And, if you leave the assets to grandchildren, your estate may have to pay a 46% generation-skipping transfer tax as well. In a worst-case scenario, your assets could be reduced by as much as 80% before your heirs get to enjoy them. What is a Multi-generational IRA? Here’s another strategy that is designed for investors who will not need the money in the account for their own needs. It’s called a multi-generational IRA strategy because it stretches the period of tax-deferred earnings of assets within an IRA beyond the lifetime of the person who set up the IRA, typically to another generation. In other words, it allows you to pass your IRA to a beneficiary down a generation or even several generations to your grandchildren. To illustrate how a multi-generational IRA strategy works, consider: Alice, who’s 60 years-old and ready to retire. She has $300,000 of assets in three employer-sponsored plans and two IRAs. Two of the accounts were inherited from her deceased husband. She would like to leave some of the assets to her favorite charity and the rest to her two children, Sue and Bob. Here’s how Alice can use a multi-generational IRA strategy in her estate planning. When she retires, Alice rolls over her plan benefits into traditional IRAs, consolidating her assets so that she has three IRAs of $100,000 each. As long as she has the plan trustees transfer the assets directly into the new IRAs, there won’t be any tax consequences. She names Sue beneficiary of the first IRA, Bob beneficiary of the second IRA, and the charity as beneficiary of the third IRA. Alice decides to postpone distributions from the accounts and let all three IRAs continue to grow tax deferred until she reaches age 70½. Tax law requires tradtional IRA owners to begin receiving required minimum distributions based on life expectancy by April 1 of the year after they turn age 70½. By the time Alice begins distributions, the IRAs have each grown to $250,000, a $750,000 total for all three. Based on her life expectancy, taken from IRS tables, Alice would have to withdraw a total of about $27,000, in minimum required distributions at 70 1/2 from the three IRAs. Each year the custodian of Alice’s IRAs will determine for

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